The growth of aggregate unemployment in India : trends, sources, and macroeconomic policy options

Much skepticism has been expressed about the realism and the usefulness of measuring unemployment and underemployment in dominantly agricultural and dualistic Asian economies. And the controversy continues over the concepts to be used for measurement. After an analysis of some significant macroeconomic tendencies, the paper provides a nonparametric decomposition of the growth of weekly status unemployment. Four factors emerge: population growth and changes in the participation rate on the supply side, and growth of the capital stock and capital intensity on the demand side. Alternatively, the growth in the demand for labor is broken down into the contributions of the growth of output and the growth of productivity. The decomposition exercise makes it possible to compute alternative combinations of growth rates of population, output, and productivity required for a target reduction of unemployment by the end of the century. The main outcome is that, although India has a massive unemployment problem, it can be reduced by a sustained overall growth rate of approximately 6.5 percent a year.